Finance Minister Jim Flaherty announced new measures that will make it more difficult for first-time homebuyers to enter the housing market. These measures come on the heals of the October 2008 announcement that eliminated the 0% down mortgages, reduced the maximum amortization to 35 years, as well as other measures.
Concerned about debt loads and home affordability, the government will introduce these new measures to ensure new homebuyers can weather changes in the interest rate environment.
New CMHC Rules
Canadian law requires mortgage insurance if the homebuyer has made a down payment of less than 20% of the purchase price. The homebuyer pays for the mortgage insurance that protects the lender in the event of default.
The new rules now require:
- Borrowers to qualify for a 5 year fixed-rate mortgage regardless of the term selected and interest rate on the mortgage.
- If refinancing, the minimum loan to property value must now not be less than 90% (changed from 95%).
- A minimum down payment of 20% for non-owner occupied properties.
No Sign Of A Housing Bubble
While Flaherty did comment that there was no sign of a housing bubble, the measures are an indication that the government wants to take action now to prevent future problems if interest rates rise in the near future.